ALBANY — The state Department of Health plans to hire up to 1,200 workers — many to be located in the Capital Region — over the next six years as it takes over the Medicaid program from counties, an official testified at a budget hearing Wednesday.

State Medicaid Director Jason Helgerson said the state budget includes funding for up to 120 new hires before year's end. Gov. Andrew Cuomo's budget proposal includes a phased takeover of both the administration of the program — for which counties now pay more than $7 billion, or about 13 percent of its total costs — offering health care assistance for just under 5 million elderly and poor New Yorkers.

The proposed budget also includes a gradual state takeover of increased Medicaid costs; currently counties only pay three percent of cost increases under the program.

"We're hopeful that we can begin this transition in 2012, but realize this is a very complex undertaking to go from this distributed model, with counties doing the work, to the state administering," said Helgerson. "The state's staffing is going to have to grow."

He estimated there are now "several thousand" employees around the state who deal with enrollment, which often takes place through county departments of social services. It's difficult to get an exact estimate because many employees that deal with Medicaid are also involved in other programs. For example, Rensselaer County has 20 employees who deal exclusively with the program and another 40 who spend part of their time working with people in the program, county spokesman Chris Meyer said.

Helgerson said the state was working on creating a more streamlined, online method of applying for Medicaid — "most of it's paper now" — that will accompany the centralization.

At a time when a record number of state workers are retiring and hiring freezes have thinned the ranks of the workforce, the plan will result in new jobs around Albany.

"Right now the thought is to have a majority of those positions (in the Capital Region), but the state is going to want to look at whether centralized mean having everyone in the Capital Region, or whether we want to have a multiple-nodes approach, so we have certain centers around the state," Helgerson said.

The budget proposal would exempt county workers from the need to take state civil service exams as part of the centralization efforts, Helgerson noted, referring to county employees who could be shifted to the state workforce. The state can also contract with local government entities or private companies to do the work, which he said would increase flexibility.

"This would be a huge mistake," said PEF spokeswoman Darcy Wells. "The state would lose the ability to control costs and quality, and confidential personal and medical information would be placed in the hands of the employees of private contractors."

County officials have long sought a state takeover of Medicaid — New York localities pay the highest share of any state — but pointed out flaws in the administration's approach.

Rensselaer County Executive Kathy Jimino said the state would immediately begin forcing counties to assume all increases in administration costs — staff salaries, health benefits and pension contributions — but "there's no certainty about when the positions will be taken over."

"We're going to have less water poured on us each year but we're still drowning," she said.